Accountable Care Organizations, Bundled Payments, and Health Reform

With the enactment of the Patient Protection and Affordable Care Act (PPACA) in March 2010, health care reform has become the law. The legislation will extend health care coverage to more citizens, stabilize health insurance markets, enhance regulation and consumer protection, and improve the affordability and quality of health care in the United States. Changes in payment system of health care proposed by PPACA have led to the development of Accountable Care Organization (ACO). This paper will address how ACOs and the bundled payments system will impact the future of health care.

The ACO is a health care organization which provides accountability for quality, cost, and care for medical beneficiaries with single entity providers that are responsible for delivering care. The ACO-model builds on the Medicare Physician Group Practice Demonstration and the Medicare Health Care Quality Demonstration, established by the Medicare Prescription Drugs Improvement and Modernization Act of 2003. Under the Affordable Care Act, the U.S. Department of Health and Human Service (HHS) released new rules that benefit doctors, hospitals, and other health care providers of better care for Medicare patients through ACOs on March 31, 2011(U.S. Department of Health & Human Services, 2001). According to the Centers for Medicare & Medicaid Services’ (CMS) administrator Donald Berwick, MD, “An ACO will be rewarded for providing better care and investing in the health and lives of patients. ACOs are not just a new way to pay for care but a new model for the organization and delivery of care” (Penton Media., 2011).

The new model, which is called the “Pioneer Accountable Care Organization,” is to improve the quality of care for Medicare Fee-For-Service (FFS) beneficiaries (Medicare Parts A and B) and reduce unnecessary costs through establishing a shared savings program, which promotes accountability for Medicare FFS beneficiaries. It requires coordinating care for services provided under Medicare FFS and encourages investments in infrastructure, and it redesigns care processes. Regarding the differences, the Pioneer ACO payment model incorporates a population-based payment in the third year of the ACO’s Participation Agreement.

This population-based payment will replace fifty percent of the FFS payments (McDermott & Emery, 2011). The Pioneer ACO model is estimated to save Medicare as much as $430 million over three years by coordinating with private payers to reduce costs for Medicare beneficiaries and improve health outcomes. An ACO may engage in either a Shared Savings Program or in the Pioneer ACO model. In addition, the Pioneer ACO model is separated from the Medicare Shared Savings Program for Medicare beneficiaries by the Advance Payment Initiative (Center for Medicare and Medicaid Innovation Center, 2011).

ACOs require the ability to manage cost and quality for patients across the continued extent of care and across different associational settings. They also require the capability to plan budgets and resources needed to allocate payments, and the commensurable size of primary care providers for Medicare patients’ populations assigned to the ACOs (at least 5,000 Medicare or 15,000 commercial patients). According to the Journal of the American Medical Association, doctors Shortell and Casalino recommend a three-tiered system of qualification for ACOs (Shortell, S. and Casalino, L., 2010). The tiers will be based on the degree of financial risk acceptable for ACOs and the degree of financial rewards that can be completed by performance targets. In the first tier, ACOs will receive FFS payment with shared savings for providing quality care at lower than the expenditure targets.

In the second tier, ACOs will receive bundled payments and episode of care based payments for managing costs and achieving benchmarks. They will be accountable for care that meets these criteria. In the third tier, ACOs will receive partial and global capitation payments. Under a three tiered structure, ACO providers will submit a three-year plan to the HHS or CMS for achieving qualification status at the varied levels.

The U.S Department of Health and Human Services (HHS) announced the “Bundling Payment for Care Improvement Initiative” to coordinate payments for services delivered across an episode of care, such as a cardiac bypass or a hip replacement, on August 23, 2011 (Vendome Group, LLC, 2011). The definition of bundled payments refers to a single payment for all care related to an entire treatment or condition. Bundled payments, also called episode-base payments or case-rate payments are considered as a mechanism for improving both cost and quality, such as currently exist with Geisinger Proven Care and the Prometheus Payment system (Dark,Cedric., 2011).

Bundled Payments do benefit physicians and hospitals if patients complete their medical treatments within a certain time period because it will save the physicians and hospitals additional costs. However, it is a disadvantage for physicians and hospitals if the treatment takes longer than the traditional time because it will cost more money to care for patients. Unfortunately, its emphasis is less about improving care and more about reducing the financing for medical care (Gorman Health Group Blog, 2011). This means hospitals, physicians, and other practitioners will have to take their own approach to improving the delivery of healthcare, which should benefit Medicare patients.

The goal of the initiative is to increase efficiency of care, improve quality of care, and lower costs. This initiative consists of four different bundled payment models. The first three bundled payment models are retrospective payment arrangements based on patients’ historical data. However, the fourth model is proposed for the future. Centers for Medicare & Medicaid Services (CMS) make a single bundled payment to the hospital for all services during inpatient stays for hospitals, physicians, and other medical professional specialists.

In the first model, the episode of care is the length of time the inpatient stays in the acute care hospital. Medicare pays the hospital a discounted payment based on the payment rates established under the Inpatient Prospective Payment System (IPPS), which starts at zero percent for the first six months and then rises to a minimum of two percent in the third year, based on the IPPS. Physicians are paid under the Medicare Physician Fee Schedule. Hospitals and physicians are to share in any costs. This model benefits Medicare patients by reducing their costs, but not hospitals and physicians because they must share in any expenditures. The second model, which is also based on IPPS, is different from the first model because it includes inpatient and post-acute care from either 30 or 90 days following discharge.

This bundled payment includes physicians’ services, post-acute care, readmissions, and other related services, which can be clinical laboratory services, medical equipment, prosthetics, orthotics, other supplies, and Part B drugs. The minimum discount is three percent for the first 30 to 90 days after discharge and two percent for more than 90 days. The Medicare enrollee is to share the costs if the total payments are less than the target price. However, the provider will be responsible for payment coverage if the total payments exceed the target costs. This model uses an incentive discount for Medicare patients to spend less time in rehabilitation versus the first model which has no early rehabilitation discount. However, this model does not give an advantage to hospitals and physicians because it encourages Medicare patients to leave medical services sooner.

The third model begins at discharge from an acute facility if less than 30 days are spent in rehabilitation. These bundled payments are the same as the second model with the exception of a discounted rate, which Medicare enrollees are required to set up instead of CMS, since CMS has not indicated an expected discount for medical service (Becker, Epstein & Green, P.C, 2011).

In the fourth model, which is the only perspective model, hospitals will receive a single bundled payment from CMS that covers all medical services by hospital, physicians, and other medical professional specialists. The minimum discount will be three percent of the estimated total costs for the episode care (Proskauer Rose, 2011). The bundled payments are more hospital-centric than ACOs’ program. However, ACOs’ focus will be on how hospitals and physicians will share reimbursements in a post-fee-for-service payment system. Therefore, Medicare beneficiaries will benefit the most but hospitals and physicians will not.

Future ACOs include: Integrated Delivery Systems, Multispecialty Group
Practice (MSGP), Hospital Medical Staff Organization (HMSO), Physician-Hospital Organizations (PHO), Interdependent Practice Organization (IPO), and the Health Plan Provider Organization or Network (Charles DeShazer, 2011). However, most physicians work in very small practices that would not likely have the resources to develop the capacities to be an ACO. In an ACO-based health care organization, these small practices would either merge into new or already existing specialty group practice, or would engage in an ACO that facilitates clinical integration among small practices.

Many physicians may still prefer smaller practices, and under comprehensive healthcare reform may continue to exist. In ACOs completely based on the quality and cost of care, the market may decide whether virtually integrated systems can succeed in competition with systems where physicians are merged into large group practices. Moreover, specialist physicians are creating medium sized or even larger single specialized groups. However, a single specialty group cannot serve as an ACO for full patients care but can be an essential element of an ACO or can be a crucial source of medical care through referrals.

In Integrated delivery systems (IDS), medical care is coordinated and reimbursed within the system to make patient care more efficient while improving access to and the quality of the care received. Some examples are: Cleveland Clinic, Henry Ford Health System, Mayo Clinic, Scott & White Clinic, and so on. However, a recent report indicates that challenges may still remain. IDS face lack of compensation from health insurance providers for care coordination services as well as difficulties in finding specialty care, such as mental health care and changes in management and physician cultures in adopting the new organization (United States Government Accountability Office, 2011).

The promising advantages of the multispecialty group practice (MSGP) model were recognized in 1932. As stated in the Physician’s Advocate(2008), “These advantages include having the resources to redesign care processes, take advantage of economies of scale to implement electronic medical records, form health care teams, obtain database feedback on performance gaps, and make the changes needed to improve care” (Physician’s Advocate, 2008). Some
evidence indicates that multispecialty group practices do make the most of recommended care management processes like electronic information technology, as well as sharing in quality improvement medical services. Therefore, MSGPs provide better quality care for preventive measures involving screening tests and diabetes management than smaller forms of practices. Moreover, studies also indicate lower Medicare spending on patients related to multispecialty or hospital associated groups than other patients. However, it is unlikely that MSGPs will become the major organization form in the United States health care system since it is so expensive to implement.

HMSO, more than 800,000 physicians that currently practice in the United States are members of hospital medical staffs (Carroll, 2011). The hospital medical staff organization can serve as ACOs for either inpatient or outpatient care. Studies indicate that most physicians have primary relationships with a single hospital to form a stronger partnership entity between physicians and their primary hospital (Fisher and et al., 2006). Hospitals have resources to support adopting electronic medical records (EMR), provide performance and accountability data, and assist quality improvement support for physicians. Bundled payments for specific medical conditions or episodes of sickness, such as a coronary artery bypass graft (CABG), hip or knee replacement (Massachusetts Medical Society, 2008) will provide incentives for hospitals and physicians to work together to reduce Medicare costs (Welch, WP and ME Miller, 1994). This model will have future advantages for chronic illness treatment as well as episodes of care since physicians and hospitals work together closely to monitor patients’ long term care. However, the HMSOs encounter challenges including leadership of the diverse cultures of hospitals and physicians and legal restrictions to obtain sharing (Primary Care Associates., 2008).

An alternative of the MSGP model is the PHO. Hospitals and physicians work together to ensure cost-effective and steady system delivery of medical services and the provisions of the health care services to the patients. There are approximately one thousand PHOs in the United States and most are managed organizations with the goals of achieving and managing the quality and cost of care (Nixon Peabody LLP., 2010). Under the Affordable Care Act, the contracting PHO model can emerge into an entity that will manage the quality and cost of care. Without meeting the needs of all physicians, this model has the advantage and the incentive of improving performance. With the HMSOs, the hospital will provide resources for EMR, performance reporting, quality improvement, and process management support. However, PHOs must be clinically integrated to avoid anti-trust laws (Casalino, Lawrence P., 2006).

A fifth model is the Interdependent Practice Organization (IPO), which is an advancement for those physicians who practice in small organizations or who do not wish to be part of larger organizations for delivering care. The interdependent practice organization is based on an association of physicians in numerous independent practices. IPOs are capable of providing high quality, better care, although most of these organizations are loosely organized (Rittenhouse and et al., 2004). The future IPO model requires strong leadership, administration, and enough patients across individual practices to support financing of technology infrastructure and management systems. IPO models might be attractive to physicians practicing in rural areas. With given sufficient incentives, existing IPOs can became independent organizations by strengthening their management structure and developing a solid shared culture of performance improvement. These requirements are challenges since IPOs are composed of many small practices.

The last model, the Health Plan-Provider Organization or Network (HPPO/HPPN) is similar to the IPO. It is based on an association of independent physician practices. The health plan will be the major financial assets to encourage a more cost-effective health care delivery system. Many have capabilities in disease management, electronic information technology implementation, and quality improvement entities that can be used effectively in collaboration with physicians. Some physician practices may participate with health plans rather than local hospitals. Health plans can be part of a smaller physician’s practice and become the unit of accountability of performance. However, the success of this model will depend on an individual physician’s leadership (Shortell and et al., 2008).

The Centers for Medicare & Medicaid Services (CMS) released final rules and new opportunities for financial support for doctors, hospitals, and health care providers to work together to improve the care of Medicare patients by adopting ACOs on October 20, 2011. The new rules provide for a new voluntary Medicare Shared Savings Program. Providers will be able to participate in an ACO and share in the savings with Medicare. ACOs will reward providers for reducing the costs and meeting quality measures, such as reducing hospital readmissions or emergency room visits. Providers will begin to share in savings based on how they perform in thirty-three quality measurements in the second and third performance years. Medicare beneficiaries will be a part of the ACO system when they form. Moreover, community health centers and Rural Health Clinics (RHCs) will be allowed to participate in the ACO programs (Galewitz, Phil and Jenny Gold., 2011).

To appeal to providers, CMS will provide physician-owned and rural providers early access to the expected saving of up to $170 million dollars, so providers can start ACOs right away. At the same time, the Antitrust Division of the Department of Justice issued the entire final rules that will allow providers to participate in the Medicare Shared Savings Program. In addition, the final rules will no longer require a mandatory antitrust review for collaborations as a condition of entry into Shared Saving Program (Department of Justice, 2011). Electronic health record (EHR) usage is no longer a condition of participation to prompt more RHCs and other programs to join (Center for Medicare and Medicaid Innovation Center, 2011). Moreover, CMS will assist agencies in monitoring the care and quality of performance of ACOs. The program will save up to $940 million dollars over four years (U.S. Department of Health & Human Services, 2001).

Patients or Medicare beneficiaries are encouraged to select an ACO as their medical center. ACOs can be used for result-based payments, public report purposes, and claim-based payments which retrospectively allow patients to join who have not adopted ACOs. This advances patients’ choices and encourages ACOs to coordinate their patients’ care to treat patients equally. Because physicians are not required to be part of ACOs, physicians can still be paid with the Shared Saving Programs used by Medicare, Medicaid, and other commercial health plans. They also can be eligible to achieve quality-based rewards. In addition, physicians and hospitals that are part of ACOs can have both obtainable rewards for improving quality and controlling costs; however, there is more inevitable risk. Furthermore, bundled payments for certain services and procedures, using a combination of capitation, result-based payments, and readmissions, gain sharing between physicians and hospitals that can be adopted within ACOs.

Physicians also can benefit from the assistance that ACOs can provide with electronic health records and with implementation of established processes to improve quality and efficiency. Health reform will be needed in laws and regulations for the Stark law, anti-kickback statuses, fraud and abuse, anti-trusts, scope of practices, and the corporate practice of medicine. However, the final rules were relaxed and established waivers for the physicians’ self-referral law, the federal anti-kickback status, and certain penalties to encourage the participation in the Medicare Shared Saving Program and the Advance Payment Initiative (FierceHealthcare, 2011). Therefore, more medical providers will be regulated by the programs.

In the past, healthcare leadership has relied on organizational structure to deliver higher quality at lower costs, which has not succeeded in improving neither efficiency nor performance. In fact, they have increased the problems that they intended to address. Neither diagnostic related groups (DRG) nor Health Managed Organizations created a shared achievement for all parties. Provider profit motivation lacked the pressure of medical beneficiaries to protect quality while minimizing costs. While each DRG and resource based relative-value unit encouraged providers to focus on provision without interventions, HMOs and other managed providers encouraged providers to minimize intervention, regardless of whether managing could delay the quality or completeness of patient care (Numberof, 2011). Ignoring the minimal role that patient demand plays in driving market completion among providers, the current and past medical health care system has decreased accountability for quality of medical care.

ACOs were established to fix the inadequate accountability for wasteful spending and quality of patient care. The PPACA provisions are consumer based solutions; however, they do not allow patients to have fully informed choices about their coverage and medical care (Numberof, 2011). Employers, who contract with insurers, apply with providers; therefore, accomplishment is limited. However, many physicians are reluctant to assume accountability for patient outcomes, since they admit that outcome is directly under the behavioral control of the patient. Furthermore, it seems that provider contracts could be integrated to a successful ACO in a shared savings program; providers continue to receive funding for each service they perform.

Even with the possibility of a bonus from shared-savings, maintaining the FFS system boosts providers into continuing delivering an excess of services. In addition, ACOs, which are a single untested model, are largely hospital based. Eligibility requirements are larger and more involved for ACO organizations. Larger organizations are able to consolidate their markets; however, this consolidation may result in less competition. Therefore, large delivery organizations may become too big to fail but will increase advantages for patients. Without competition, the organizations might have little incentive to reduce the costs or improve quality of medical care.

Enduring health reform has to cover the uninsured without exception or conditions. As Victor Fuchs, professor at Stanford University mentions “It [Enduring health reform] must improve efficiency in medical practice by providing physicians with the information, infrastructure, and incentive they need to deliver cost effective care” (Fuchs, 2010). Information will come from the electronic health records, a process that will be amped up by the HITECH Act, which is part of the American Recovery and Reinvestment Act of 2009 (Leyva, Carlos and Deborah Leyva, 2009). Electronic health records will benefit providers with more accurate real-time data on patients as well as provide analyses on drug responses and provide support to improve the quality of medical care. Health information Exchange (HIE) can enhance information from a wide databases and allow that information to be shared through various technology by providers. This allows related patient information to be shared within EMR with the provider who needs that information (Southern New Hampshire Health System, 2011).

Furthermore, the Patients Centered Outcomes Research Institute (PCORI) will offer physicians and patients new information of varied medical technology. Atul Grover, chief advocacy officer for the Association of American Medical Colleges, notes “It will be an evidence synthesis that really considers different populations and different diseases and tries to get more information to clinicians as they go about doing their daily work” (Marathon Medical Communications, Inc, 2010). The integration of the PCORI will enhance information so that physicians and patients can choose the appropriate test and treatment based on the patients’ condition. Moreover, infrastructure reform will enhance horizontal collocation within providers and monitor patients consistently.

Health care reform strengthens greater integration through the redesign of delivery systems such as medical homes and ACOs for physicians. Recent studies suggest that better coordination of care can reduce readmission rates for major chronic sicknesses (Hernandez, AF, 2011). In addition, the PPACA will give incentives for hospitals to support proven practices that essentially reduce their rates (Foster, 2010). Likewise, the PPACA’s pilot program involving bundling payments will bring physicians and hospitals an incentive to allocate care for patients with chronic illnesses.

Most essentially, PPACA admits that health reform that brings ACOs as the delivery system is an ongoing process requiring continuous adjustment. The PCORI will develop new medical tests, drugs, and other treatment that will provide continuously updated information for physicians and patients. Over the next decade, similarly, the Innovation Center in the Centers for Medicare and Medicaid will be establishing and evaluating new policies and programs that will enhance the quality of care for Medicare beneficiaries and reduce costs.

PPACA not only will expand health care coverage to millions of Americans but also will enact many policies to reduce the amount of costs for health care by bringing ACOs as the delivery system, which will reduce the costs of health care over time. By enacting ACOs as a Primary Care Provider (PCP), PPACA provides the most effective medical care support possible. Moreover, by adopting the bundled payment approach, physicians, hospitals, and other providers will be able to reduce the costs for Medicare beneficiaries. Therefore, the public should embrace the new health care proposal to reduce their costs and improve the quality of their medical care.

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